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Passing the
corporate baton
It is time again, for passing
on, one of the heaviest corporate batons in business history. Jack
Welch, the legendary CEO of GE, who has been astride the GE throne
for over two decades, will retire in 2001 and Jeffrey Immelt has been
annointed as his successor. He will be handing over charge of a Company,
which he rebuilt by radical restructuring, earning him the sobriquet
of Neutron Jack, into the world's most admired, most profitable and
the most valuable enterprise. The last such event was when the late
Robert Guizeita of Coke, was succeeded by his deputy Doug Ivester
and the baton slipped, sending Coke into a virtual tailspin. Even
in India the succession of Ratan Tata, to the legacy of JRD Tata,
was not a wholly smooth affair, in which the last fracas with Ajit
Kerkar of Indian Hotels was fistful and acrimonious.
In
the recent past, corporates such as Gillette, Coke and P&G, have suffered,
due to blips and slippages in passing the corporate baton, resulting
in severe erosion of their market capitalisation and shareholder value.
By legal definition, corporates exist in perpetuity, but in reality,
such perpetuity is largely based on smooth successions. From the perspective
of the capital markets, a smooth takeover helps in maintaining, both
corporate profitability as well as market valuation Recognition of
the importance of a smooth handing over, not only helps to maintain
corporate continuity, but it also, as a by product builds capacity
in an organisation, to accept change, emerging from mergers and takeovers.
It also helps firms to pass on corporate cultures, as part of a continuous
process of corporate evolution and is the reason why companies like
Dow and the Rothschilds transcend centuries.
Corporate honchos are constantly on the mat in today's times and retribution
is swift and uncomprising, in case of poor performance. Even the successors
are merely given the minimum mandatory honeymoon of just a hundred
days, without appreciating that at takeover times, they are probably
straddling two eras, which gives rise to the following difficulties:-
a) When the concentration of power is high and there is a wiespread
fragmentation thereof at takeover times.
b) The incumbent alters business plans and the organisation structure
radically and quickly.
c) The management styles of the predecessor and his successor are
very different.
d)
The retiring top dog has a larger than life image and probably supersedes
the Company, as in the case of Jack Welch himself.
e)
Family ownership is large and meddlesome. Such difficulties as stated
above, are accentuated and more severe, in the folowing cases:-
1. The onset of a new leader brings changes in corporate cultures,
management styles, inter personal relationships and intra corporate
networks, as was the case when Ratan Tata took over.
2. Destabilisation of the top management caused by the exit of disgruntled
managers, who were superseded, as in the recent case of LIC.
3. Disturbance of the existing power centres and the inertia therein,
which saw the exit of the likes of Ajit Kerkar, from the Tata empire.
4. Alteration of corporate focus and business plans, as per the directives
of the new boss, as was done by the redoubtable Jack Welch, when he
took over.
5. Changed expectations of vested interests within and outside the
organisation, as happened when Jacques Nasser took over as CEO of
Ford.
6. Gestation period for setting up new equations and relationships,
within and outside the organisation.
7. Likely discovery of skeletons in the cupboard of the past persons,
as was discovered in Coke after the exit of the late mr Guizeita.
8. Headhunting of ambitious middle level managers, who have been sidelined
in the new regime, which GE will soon witness.
9. Efforts of aggressive competitors to destablise business, as Unilever
did in the case of P&G, a few years back. The fact is that corporate
successions need to be carefully handled. A failed succession can
fritter away the gains of an entire generation of managers, thus hurting
corporate profitability and shareholder value. The incumbent needs
to tackle both the owners and the managers with finesse and strike
a benign balance, as is evident in the case of Jacques Nasser and
Bill Ford at Ford and Percy Barnevile and the Wallenburg family, the
owners of the formidable Investor AB. An ideal way is to announce
the succession and the successor, much in advance, as has been done
by GE and to set up a roadmap, for a smooth takeover. The two need
to work towards it diligently—one for handing charge and the other
for taking charge. This aids in successions, builds in a capability
for mergers and acquisitions and ensures corporate perpetuity. In
India due to the preponderance of family concerns, this critical aspect
has been given little thought and has been the cause of cessation
of firms. Like in a relay race, speed and care in handing the baton,
determines victors, in passing the corporate baton too. —TMS
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